As craft distilleries boom, a Californian with whiskey in his blood takes it slow and steady

Ian Cutler, left, opened Cutler's Artisan Spirits in Santa Barbara's trendy Funk Zone development last year, He's produced white spirits like gin as his bourbon ages. His un-aged white whiskey will be on the market next month. Photo courtesy Cutler's Artisan Spirits.

By HUDSON LINDENBERGERColorado Editor / BourbonStory.com

SANTA BARBARA, CAL. – Ian Cutler’s family has history with hooch. His great-grandfather Duke Cutler moonshined in California during Prohibition. His grandfather created his own brand of blended spirits during the 1940s, and the family stayed in the spirits business for another four decades, until Ian’s boyhood in the 1980s. Fair to say: The whiskey business runs in Ian’s blood.

Last year, he took his family heritage, his own restless always-learning curiosity and a chance opportunity at a lease in a busy strip in Santa Barbara’s trendy Funk Zone and put it all on the line with a new distillery. Cutler's Artisan Spirits makes all manner of booze – most of it from scratch -- from bourbon to vodka and gin to liqueurs.

Harvey Fry is whiskey advisor at Jack Rose Dining Saloon in Washington, D.C. He warns that many of the new craft distilleries will be closed within a few years. "Kentucky doesn't have much to worry about." Photo by Michael Lindenberger / BourbonStory.com

It’s one of hundreds of new distilleries that are popping up all over the country. As of last year, there were more than 450 independent, craft distilleries in America, according to the American Distilling Institute, which keeps track. A decade ago, there were fewer than 40. And a decade before that? About 10.

Harvey Fry, maybe the country’s premier scotch collector and the resident whiskey advisor at Jack Rose Dining Saloon in D.C., where they stock thousands of brands of whiskey of every kind, says the up-and-comers in the world of bourbon face long odds. “Kentucky doesn’t have much to worry about. Most of them (new distillers) won’t be here in a few years.”

Cutler knows the long odds. He spent a half-dozen years preparing for his new role as micro-distiller, traveling through Scotland, Kentucky and Tennessee looking to learn what makes good distillers good, and bad ones bad.

“I spent equal time trying to understand what good distilleries do well, and what poor distillers are doing poorly, and really tried to distinguish between the two,” Cutler said in an interview with Bourbon Story Magazine.

“I wanted to understand all the parameters that go into making whiskey and one thing I learned is that there is a lot more going on in the maturation process than just putting whiskey in a barrel and letting it age. I had to learn the fundamentals of what was going on, what chemically was occurring.”

He has the right kind of background to understand whiskey at the molecular level – something he shares with a lot of Kentucky’s most famous old-school distillers. Like Maker’s Mark founders Bill Samuels Sr. and his wife Marjorie, to cite just one storied pair, Cutler has degrees in science – a bachelors and master’s in chemistry – to help him understand the whiskey he makes.

Degree or no degree, he says everyone who would join him in the crowded craft distillery movement should take the same first step: Go to whiskey school.

“Distilling knowledge is the biggest roadblock. There is no central location for knowledge,” he said. “I spent seven years planning vacations around well-known whiskey-producing regions. Scotland, Tennessee, Kentucky, and Ireland are fertile regions to visit. I spent time with distillers learning the craft, and developing relationships that are invaluable today.”

It also helped him learn which whiskeys tasted right to him – and how they got that way.

“While sampling numerous whiskeys my palate for good product increased. I read anything I could get my hands on,” he said.*

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Cutler looks a bit like The Dude, Jeff Bridge’s cocktail-loving character in The Big Lebowski, but his focus is all on the booze, not the bowling. He moved to Santa Barbara 14 years ago to attend university, and along the way he’s become a walking compendium of all things distilling.

He told Bourbon Story that his goal is create quality bourbon with the whiskey he’s put down to age. But in the meantime, he’s making a lot of other things along the way to pay the bills while his favorite whiskey ages.

His 33 Straight Bourbon Whiskey, a testament to the year Prohibition ended, is blended from 33 bourbons all aged six years. His un-aged whiskey, made entirely in his small distillery, will be on the market next month, he said. It will join vodka, liqueurs and other spirits he has produced in the first year of business.

“If you can offer a mixture of spirits then you hopefully have money coming in,” Cutler said. “Unlike other businesses, distilling is time-dependent. You don’t usually show return-on-investment for a couple of years.”

Congress passed a resolution May 4, 1964 setting the rules for what can be called bourbon.

That’s because bourbon, or any bourbon that wants to call itself ‘straight bourbon’ anyway, takes at least two years to age–and many of the best bottles have spent a lot longer than that in the barrel.

That poses a challenge for start-ups.

“Getting banks or other individuals to loan you money is tough, especially if you are creating bourbon,” Cutler said. “I realized that to be successful I would need to craft spirits that require minimal time. They pay the bills while my bourbon ages.”

Cutler said his path has been a slow one – deliberately. “I took a harder road than most. I am just a lone individual, a sole proprietor,” he said. “I spent the past four or five or even six years working multiple jobs -- consulting, holding three jobs at a time -- to save up the funding to try to start the distillery. That’s why I am extremely small and on a tight budget.”

He said he wanted to start small – without partners, or investors – so he could build the business so it will last. “I tried very hard to really get a distillery going that has lasting power,” he said. “I spoke to a lot of people across the country, and a big failure mechanism was this idea that many distillers have, that they’ll be selling in four or five states in a couple years and (soon after that) be selling in 20 and 30 states and then as a national brand. I don’t see that as being feasible.”

For now, his bottles are available only in California, and mostly near the central coast area that includes Santa Barbara. That’s okay with him for now, he said.

“I love creating,” he said. “I started homebrewing at age sixteen, beer and meads. In my mid-twenties, I started dabbling in spirits. Something drew me to them. Most of the successful distillers I have met love the art of creating, trying new recipes, testing different digressions.”

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For the hundreds of craft distilleries in the U.S., the roadblocks to success don’t end with the special challenge of bourbon’s aging requirements.

Banks and bureaucracy are two other roadblocks that must be surmounted before you can turn on the first burner. Finding capital might be the single largest issue facing the fledgling industry today. Let’s be honest, banks don’t like risks, they avoid them like a mother around sharp objects. They get very nervous.

Since so many craft distillers are so new, and since even together they produce less than 0.5 of the country’s spirits, the industry’s track record is too thin for most banks to back brand-new bourbon producers. Craft brewers faced the same issues for years; it was not until the last 10 years that banks began to love them.

The best way to fund an operation is to find a whiskey drinker with money to spare -- not that easy. Or raise funds through family, friends and yourself. Ian saved for several years to be able to finance his own start up.

Another challenge? Dealing with government licensing. That can be as much fun as a glass of tepid whiskey on a muggy afternoon. Dealing with four different, and distinct levels makes it all that much more fun. To successfully distill you usually must get approval from city, county, state and federal officials -- that is a lot of red tape.

Some states are more helpful than others. Oregon, for instance, recognized as far back as 2008 that the same pressures that had led to its microbrewery explosion were going to push entrepreneurs into the spirits business, too. It has a helpful guide to get started.

Cutler suggests patience and to think like a teacher. “When I first approached the Santa Barbara City Council, one of the members pulled me aside and told me he liked the idea, but it would never pass. He said the city was just not ready for it.

Ian Cutler's family history is full of hooch. His is the first licensed distillery in the Santa Barbara area since Prohibition. Photo courtesy Cutler's Artisan Distillery.

“I kept at it,” he said. “I looked at each meeting I had with an official as a learning opportunity (for them). I would illuminate the positives of my endeavor, and allay any fears they might have. You have to realize they don’t know anything about distilling; it’s your job to teach them. Several of those same members now regularly drink my products.”

It took him about a year and half to get all of his licenses and permits in line.

If banks and bureaucracies are two challenges for the novice distiller, another is lack of preparation. Don’t just go to whiskey school, Cutler advises, do your homework too.

Too many individuals have visions of grandeur, he said. They will be the next Hudson Whiskey – small brand that has big success.

Instead, start small, and develop a local following. And don’t skimp on the business plan, Cutler said. “I must have created over fifty different plans, I have a stack of them. You need to plan for any issue that might pop-up, and they will. If you try to wing it you probably will fail”

Not every micro-distillery born in the past few years has followed Cutler’s slow-going, bootstrapped approach. Take Watershed Distillery, founded in 2010 in Columbus, Ohio. Founder Greg Lehman and partner Dave Rigo finally got a business plan they could live with by 2009, and sold 20 percent of their company to investors for $250,000, Lehman told a Columbus business newspaper the following year. They kept their day jobs but he said they opened for business Sept. 1, 2010 and had gin and vodka on sale by the bottle by Dec 1.

“You can make it quickly and get it to market quickly,” Lehman told reporter Evan Weese when asked why they started with clear spirits. “It’d be tough to keep the lights on if we started with bourbon.”

Ian Cutler pours a dram at his tasting bar and craft distillery, Cutler's Artisanal Spirits in Santa Barbara. Photo by Tara Jones, used with permission by Noozhawk.com.

Still, despite its success, Watershed remains hard to find outside of Columbus. Its website say its spirits are available in Ohio, New York, Illinois and Kentucky. (For more from Lehman on the challenges they've faced, see an interview from January, 2013 with drinkupcolumbus.com.)

Cutler’s own path from clear spirits to bourbon is slower perhaps than the one Watershed and its investors have taken. But he’s comfortable with the pace he’s chosen. The hard work and risks he’s taken pay off in the faces of his customers, he said.

“I love watching people when they first try my spirits, their discerning looks and serious concentration,” he said. “That melts away after their first sip, their eyes light up, and a smile appears. I helped create that. I would not give up distilling for anything, it’s my passion.”